What is the Difference Reinventing Supply Chains Between Distribution Centers and Fulfillment Centers? Atlanta, Georgia Kelly Reed, EVP Dale Harmelink, EVP Tompkins International August 26-28, 2013 2013 Supply Chain Leadership Forum
Topics of Discussion Facility Descriptions E-Commerce Growth Strategies to Compete and Thrive Considerations for E-Commerce Improving Order Fulfillment Design Considerations Best Practice Design Principles Conclusions Discussion Points 2
Facility Descriptions Distribution Center (DC): A warehouse facility stocked with finished goods to be redistributed to retailers, wholesalers, or directly to consumers. Generally thought of as demand-driven. Thousands to millions of stock-keeping units (SKUs) Pallet and case quantities Variety of packaging methods including pallets, totes, etc. Short orders are filled on next order 3
Facility Descriptions Fulfillment Center (FC): A warehouse facility focused on order fulfillment in which the company fulfills their obligation to send a person a finished good. Typically refers to services of store: orders received, packaged, and shipped to end consumers. Thousands to millions of SKUs Individual piece pick and small parcel Packaging in shipping containers like corrugated boxes and part presentation Short orders are a disappointment to consumers 4
E-Commerce Growth Double-digit increase 16% increase in 2012 to sales of $224.3B Still only 5% of all retail sales Expected to nearly double by 2017 Good news and bad news Uncertainty of the future 5
Strategies to Compete and Thrive Consumers have many options Fierce competition Better service, selection, and prices expected by consumers Right order fulfillment strategies 6
Considerations for E-Commerce Order and shipment size Smaller orders Different units of measure (each vs. full case or pallet) Packaging and presentation Endless aisle More SKUs than are available in stores Faster SKU growth Direct from FC or drop shipped Store order fulfillment Using stores in the fulfillment process Providing the consumer with a common experience Use of lockers for fulfillment 7
Considerations for E-Commerce Peak shipping days are more intense and more concentrated Nov. 1 to Dec. 20 is peak season Black Friday to Cyber Monday peak days Volume exceeds 4 to 5+ times average shipping volume 8
Improving Order Fulfillment Strategy before structure Business strategy drives fulfillment network structure. Customized strategy that includes: Target markets Products Services Value proposition Capabilities needed to deliver products and services to your target markets 9
Design Considerations Plan the network of FCs, DCs, forward FCs, and so on. Make decisions about doing fulfillment internally or outsourcing. Determine whether to do fulfillment in-store replenishment DCs or open separate dedicated FCs. 10
Best Practice Design Principles Develop flexible solutions for shorter time horizons. Plan for same-day order fulfillment. Automation is not a guaranteed solution at high volumes. Fulfillment process consists of multiple flows to optimize productivity and efficiency. Packaging is the throttle for the entire fulfillment process. 11
Conclusions Everyone s strategy will be different, which will lead to different fulfillment solutions. There is no single right or wrong answer. Start with your business strategy as a guide. Apply best practices in FC design to meet objective and achieve excellence internally and in the eyes of the consumer. 12
Discussion Points What strategies are you using to deal with the difference between DCs and FCs? Are your strategies and tactics evolving over time, and if so, how quickly? Does your company s management team have an understanding of the differences in distribution networks and the requirements placed on the supply chain? Other comments and questions? 13